A Risk-Averse Approach to Real Estate Investing
You can invest in income property in a decidedly defensive way. Here are four conservative strategies to minimize risk while you pursue income and appreciation from investment real estate.


The highest profile professional real estate developers and investors are typically those who have won big or lost big — they made their names taking oversized risks that in some cases paid off handsomely and in other cases crashed and burned.
But real estate investing isn’t just for highfliers with nothing to lose. In fact, quite the opposite is true. Investors can take a decidedly defensive approach to building wealth through real estate investing, especially given the favorable tax treatment that rewards many aspects of real estate investment. (Consult your tax adviser to learn more.) To be sure, all investments carry risk, be they stocks, bonds or hard assets like real estate, but some investment strategies are less risky than others.
I’ve taken a generally conservative approach to real estate investing with much success. These strategies are hallmarks of my approach. They’ve helped mitigate the risks of real estate ownership and investment while maximizing the potential to achieve income (positive cash flow), shelter income from tax, and realize asset-value appreciation.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Tip #1: Avoid recession-prone, highly volatile real estate asset classes
Some asset types have demonstrated that they are much higher risk and recession-prone than others. These include hotel and lodging properties, senior housing in most of its forms, and real estate used in the production of oil and gas. Avoid these properties.
Hospitality, for example, has been hit hard by all three recessions since 2000. In 2010, following the Great Recession, U.S. hotels considered distressed by Real Capital Analytics approached 2,500 properties with total debt of $40 billion. Many investors in these properties never recovered even their principal — they lost everything. More recently, we’ve seen historic disruptions by the COVID-19 pandemic as travel both for business and leisure ground to a halt. (Marriott, as one example, had the worst quarter of its entire company history during the pandemic.)
Senior care is another sore spot, with senior housing, assisted living, long-term care facilities and nursing homes all subject to regulations that increase the risk and stability of owning and operating them. And that was even before the pandemic layered onto these types of properties the challenges of a particularly vulnerable population during a catastrophic public health crisis.
Also volatile are properties used for the production of oil and gas. Drilling and royalties from energy production are uncertain at best and highly volatile at worst. If an oil well doesn’t produce as expected despite the best due diligence, the underlying asset value can nosedive. Fluctuating oil prices from supply and demand shocks can have the same effect. Buyer beware.
Tip #2: Don’t load up on debt
It sounds contrarian and it is, actually, because it can be easy to borrow against real estate. People frequently do it to minimize their equity investment and load up on properties. But while many advisers tout the benefits of leverage, we tout the risk of leverage. Many of our clients don’t want to increase their risk profile, and since they’ve often already paid off properties — their homes and sometimes investment properties — they don’t want to go back into debt especially at a stage of life where they want to lower their potential risk and not increase it.
It’s understandable. Fortunately, there are no-leverage real estate investments available, including debt-free Delaware Statutory Trusts (DSTs). With the pandemic hovering all over the world and real estate subject to uncertainty and potential distress, a debt-free strategy can be attractive. One thing’s for sure: With private real estate offerings that are debt free with no long-term mortgages encumbering the property, there’s no risk of lender foreclosure.
This isn’t to say all debt is bad; it isn’t. But a defensive real estate investment strategy makes limited or no use of debt a priority in an effort to mitigate risk.
Tip #3: Don’t put all your eggs in one basket
Before the pandemic it was typical to see high-net-worth investors, acting independently, purchase their own properties. Post-pandemic, many investors have decided that the health crisis and economic headwinds are just too great for them to justify putting all their eggs in one basket — that is, a property or properties that they own solely.
It’s a timeless defensive strategy to diversify real estate investment capital into multiple properties in multiple geographic locations in multiple asset classes and with multiple tenants. This can be accomplished easily through a range of DST, tenant-in-common (TIC) or limited liability corporation (LLC) investments, though the tax treatment of these structures is different.
Although diversification does not guarantee profits or protection against losses, many investors are realizing that it’s just as prudent to diversify their real estate portfolios as it is to diversify their stock portfolios. For example, instead of purchasing one 100-unit property in Nashville, an investor can diversify his or her capital across 5,000 multifamily units in 15 different multifamily communities in nine different states, using DSTs. Or instead of purchasing one net lease pharmacy building for $5 million, an investor can diversify his or her capital across 12 different single-tenant net lease properties consisting of pharmacies, e-commerce industrial distribution facilities, discount stores, dialysis clinics, auto parts stores and more.
Tip #4: Co-invest with others who have similar goals and appetites for risk
It’s not mutually exclusive to be a private equity real estate investor and a co-investor — you can be both at the same time. DSTs, TICs, LLCs and qualified opportunity zone funds are among the vehicles you can co-invest in alongside others with similar goals and tolerance for risk. Plus, co-investing is inherently a more defensive play than investing solo and tying up the majority of your net worth in one single asset in one single market.
At the end of the day, you can be a defensive real estate investor by taking multiple steps to mitigate risk while pursuing a real estate investing strategy with the potential to produce monthly income and long-term appreciation.
This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. There are material risks associated with investing in real estate securities, including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through Growth Capital Services, member FINRA, SIPC, Office of Supervisory Jurisdiction located at 582 Market Street, Suite 300, San Francisco, CA 94104.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Dwight Kay is the Founder and CEO of Kay Properties and Investments LLC. Kay Properties is a national 1031 exchange investment firm specializing in Delaware statutory trusts. The www.kpi1031.com platform provides access to the marketplace of typically 20-40 DSTs from over 25 different sponsor companies. Kay Properties team members collectively have over 340 years of real estate experience, have participated in over $39 billion of DST 1031 investments, and have helped over 2,270 investors purchase more than 9,100 DST investments nationwide.
-
S&P, Nasdaq Hit New Highs: Stock Market Today
A late-day rally wasn't enough to lift the Dow into the green as its six-session winning streak came to an end.
-
Five Things to Consider Now If You Want to Retire in 2026
To retire with confidence in the year ahead, tackle these essential tasks right now.
-
Striking Gold (or Gas): A Financial Pro Unpacks the Nuances of Energy Investing
Investing in the energy industry, particularly oil and gas, involves understanding the facts about how projects generate returns through cash flow and long-term asset building, while also being aware of the risks.
-
Escaping the New Golden Handcuffs: A Financial Expert Has a Plan for Today's Executives
Feeling stuck in your job? It could be your complicated compensation package, but it also could be where you live, your family or even how you view yourself.
-
I'm a Financial Planner: Here's How to Invest Like the Wealthy, Even if You Don't Have Millions
Private market investments, once exclusive to the ultra-wealthy and institutions, have become more accessible to individual investors, thanks to regulatory changes and new investment structures.
-
Four Ways a Massive Emergency Fund Can Hurt You More Than It Helps
Saving too much could mean you're missing opportunities to put your money to work. Redirect some of that money toward paying off debt, building retirement funds, fulfilling a dream or investing in higher-growth options.
-
I'm a Financial Planner: How to Dodge a Retirement Danger You May Not Have Heard About
Timing is everything, and sequence of returns risk can mean the difference between a retirement nest egg that's overflowing … or empty.
-
Caring for Aging Parents: An Expert Guide to Easing the Financial and Emotional Strain
Early conversations, financial planning and understanding the progression of care needs can help to mitigate stress and protect family relationships.
-
I'm a Financial Adviser: The OBBB Is a Reminder for Older People to Have a Long-Term Plan
The new tax bill presents a good opportunity for retirees to revisit tax plans, look into doing some Roth conversions and consider plans for long-term care.
-
I'm an Insurance Expert: This Is Exactly Why Your Insurance Rates Are Soaring (and What You Can Do)
A dramatic rise in the frequency and cost of severe weather and wildfires means you need to prepare, prepare, prepare — no matter where you live — for higher premiums.